Cash is critical for financial inclusion
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Anyone can use cash to transact – important in a country where one in five people do not have a bank account (Finscope, 2018). Cash doesn’t discriminate according to whether you own a smartphone, can get a card from a nearby banking branch or have an ID book for a FICA or Know Your Customer process. It allows immediate participation in the economy for all.
According to the PYMNTS Global Cash Index™ South Africa Analysis, more than 50 percent of consumer transactions are completed with notes and coins. With around R135 billion in cash circulating in the economy and millions of unbanked citizens, the drive towards a cashless society risks harming those it purports to help.
Many financial institutions, technology providers, and payment organisations are motivated in pushing consumers away from using cash and towards using plastic or digital payments channels instead. For many cashless crusaders, the Covid-19 pandemic and the resulting desire for social distancing are the latest arguments against cash.
Some of them tell us that cash is dangerous, expensive and inconvenient – leading to higher economic costs, supporting the underground economy, and exposing people to higher risks of crime. Now, we even hear that coins and paper are a possible virus transmission risk vector. The World Health Organization has since dismissed reports that it said banknotes transmit Covid-19.
Steven Heilbron, the CEO of the Connect Group of Companies says, “The truth is that cash is as safe a payment vehicle as any other. In fact, card and digital payments remain far from contactless. Plastic cards, card terminals and smartphones can also collect pathogens. Whichever of these instruments you use for payment methods, you should wash or sanitise your hands as good hygiene.”
But the rush to drive consumers away from using cash could make life more expensive and complicated for those who are already struggling. Many organisations speak about the costs and risks of cash, but we don’t talk enough about the dangers of restricting consumer choice rather than giving people a selection of payments options that make sense for their circumstances.
“Cash enables anyone to trade easily, including vulnerable populations such as foreign nationals and communities in rural areas. It also makes it easier for people with low access to ATMs or the Internet to track spending and manage their budgets. Costs are low for many transaction types, particularly smaller payments; what’s more, cash is convenient and universal,” adds Heilbron.
For a spaza shop owner running on thin margins, transaction fees and other costs associated with cards and digital payments can dent profitability. Plus, their customers and some of their suppliers prefer cash, too. These informal retail stores generate an estimated annual revenue of R7 billion, serving many communities and providing a livelihood for micro-entrepreneurs.
Finally, cash offers consumers privacy. One reason financial institutions and tech companies are so keen on digital transactions is that it gives them access to a treasure trove of consumer data. They can use this data to target people for cross-sell and upsell opportunities that are not in consumers’ interests – loan products with punitive interest charges, for example.
In addition, digital transacting puts consumers’ information at risk of cybercrime. The recent data breach at credit bureau Experian resulted in the personal information of as many as 24 million South Africans and nearly 800 000 businesses ending up in the public domain.
The cost and risk attached to cards and digital
When it comes to cashless channels, we are told that digital transactions are safer for consumers and that moving away from cash helps to fight criminal activity. Yet consumers are increasingly targeted in digital fraud and cybercrime as criminals follow the money. Recent incidences of digital fraud at South Africa’s Postbank and Germany’s Wirecard illustrate that digital is far from risk-free.
As the South African Banking Risk Information Centre (SABRIC) puts it: “Although syndicates continue to orchestrate crimes involving the theft/robbery of physical cash, the evolution of the digital landscape has seen the emergence of cybercrime which is increasing at an alarming rate. These crimes will eventually replace many ‘traditional’ bank crimes as they transcend time and physical proximity due to their virtual nature.”
“Digital banking incidents increased by 20% in 2019 (27,928 reported incidents with an average loss per incident of R 9,846) a number that is set to rise in the future, as criminals continue to use social engineering tactics to extract personal and confidential information from victims, enabling them to transact on their accounts without authority.”
Digital, credit and debit card fraud in 2019 was more than R1.35 billion, according to SABRIC, while cash loss was less than 20% of digital, debit and credit fraud.
Just recently, Postbank employees stole a master key that enables them to read and rewrite account balances and change information and data on any of the bank’s 12-million cards. Not only did this give them access to the personal details of millions of grant recipients, it also necessitated the replacement of more than 12 million cards at the cost of R1 billion. The loss to government and the risk and inconvenience for individuals is staggering – highlighting the reality that digital is not free nor 100%-safe.
And what of the assertion that cash facilitates criminal enterprise? The truth is that we should not inconvenience law-abiding and often marginalised consumers with a sledgehammer approach to fighting organised crime, tax evasion, money laundering or cash crime. If cash is less readily available, criminals will find other stores of value; and in retail, theft of cigarettes, liquor, electronic devices and jewellery is as much of a problem as cash crime.
Cash is still the dominant choice of payment in South Africa’s emerging economy
We asked Spark ATM Systems, South Africa’s leading ATM deployer with over 4,300 ATMs across South Africa, what are the trends they are seeing in demand for cash? They responded “We are seeing a strong and steady demand for cash across the country. Social grant recipients will queue for an ATM from the midnight before the funds are released and then withdraw the full amount of the grant.
The taxi industry is another big driver of cash demand where we see very few payment alternatives for commuters. On a regular basis we are asked to deploy an ATM in a small rural community to drive financial inclusion and to limit expensive transport costs for customers needing cash. We are certain that cash demand will remain strong in South Africa for the foreseeable future.”
“While cashless channels have an important role to fulfil in the enhancement of financial inclusion, it’s important to protect and celebrate the vital and inclusive role that cash plays in our economy.
After centuries of use, cash is still one of the safest and most trusted forms of value storage. In the industry’s enthusiasm for technology solutions, it should leave no consumer behind, but include everyone and empower consumers with choice and control over their financial lives,” concludes Heilbron.